Facebook buys stake in Jio Platforms for $5.7 bil. to grow e-commerce on WhatsApp

23, Apr. 2020

Photo by Alex Haney on Unsplash
Photo by Alex Haney on Unsplash

By Atul Ranjan

NEW DELHI, NNA- Social media giant Facebook Inc. is investing $5.7 billion for a 9.99 percent stake in Indian digital firm Jio Platforms Ltd. to build a potentially game-changing business model on WhatsApp in one of the largest digital markets in the world.

Tapping into India's internet boom and growing e-commerce, Facebook is forging strategic partnerships with Jio Platforms which has been offering a slew of telecom and digital services under its umbrella to millions of users.

These include Reliance Jio, a huge mobile network with 388 million users as well as Apps that have enabled users to shop online, stream movies and read news.

Announced on Wednesday, the landmark deal includes a partnership with WhatsApp to grow businesses on the messaging service which is popularly used by hundreds of millions in India.

Both companies aim to create new opportunities for businesses of all sizes, but they will pay special attention to the more than 60 million small businesses which employ the majority of workers in the country.

“For instance, by bringing together JioMart, Jio’s small business initiative, with the power of WhatsApp, we can enable people to connect with businesses, shop and ultimately purchase products in a seamless mobile experience,” said Facebook in its statement.

Both companies said consumers would be able to access the nearest stores that can deliver products and services to their homes and transact seamlessly with JioMart using WhatsApp, which has more than 400 million users in India, according to TechCrunch news site.

JioMart is being built in partnership with millions of small merchants and provision shops to serve consumers better, said Jio Platforms in its statement.

Facebooks said its collaboration with Jio Platforms will pave the way for new ways for people and businesses to operate more effectively in the growing digital economy.

The investment by Facebook has valued Jio Platforms at $65.95 billion pre-money enterprise value, said the latter.

India is home to some of Facebook’s most thriving communities on WhatsApp, Facebook and Instagram.

“The investment underscores our commitment to India, and our excitement for the dramatic transformation that Jio has spurred in the country,” Facebook said in its statement .

Impressed with the dramatic success of telecom operator Reliance Jio Infocomm Ltd., a Jio Platforms subsidiary, Facebook said, “In less than four years, Jio has brought more than 388 million people online, fueling the creation of innovative new enterprises and connecting people in new ways.”

Jio Platforms is a wholly-owned subsidiary of billionaire Mukesh Ambani's huge conglomerate Reliance Industries Ltd.(RIL).

According to RIL, the investment by Facebook is the largest ever for a minority stake by a technology company in the world and one of the largest foreign direct investments in the technology sector in Asia’s third largest economy.

The country has witnessed a rapid adoption of digital technologies with more than 560 million people gaining access to the internet in just the last five years.

The deal comes amid the Covid-19 pandemic and nationwide lockdown which has hit small businesses very hard. However, the companies said it is important that they lay the groundwork now to help people and businesses as "digitalisation will be an absolute necessity" in the recovery.

Besides, Jio’s platforms have already been a “dependable and inclusive digital lifeline for our nation" during the current crisis, said Jio Platforms in its statement.

Rajeev Shah, managing director of RBSA Advisors, a valuation and investment banking advisory firm, expressed confidence that Facebook would secure a long-term distinct position in the Indian market after partnering with Jio Platforms, one of the largest digital companies in the country.

“Facebook has paid a rich valuation, and rightly so, in order to secure a strong foothold in one of the largest digital ecosystems outside of the United States and excluding China (since Facebook doesn’t have a prominence in China),” he said in an email statement on Wednesday.

Tarun Pathak, an associate director for India office of research firm Counterpoint Research, sees the Jio-Facebook deal as an attempt to marry local commerce with social media.

“The e-commerce is one segment where both the companies have been putting efforts in recent times like JioMart and Facebook with the marketplace,” Pathak told NNA.

Pathak believes e-commerce will transform when the next 300 million people hop onto the digital platform in the coming years as they would demand a localized focus. When both companies cater to the trend, it would eventually boost the Facebook ad platform as well.

Facebook’s larger India strategy, according to Pathak, is to explore synergies across its platforms to grow them as thriving marketplaces as it seeks to capture new users.

“Achieving all these becomes easier if you have telco partnership in place and if it is someone like Jio,” he said.

According to a 2019 Digital India report by McKinsey Global Institute, the number of internet users in India is likely to hit around 800 million and the number of smartphones is expected to double to around 700 million by 2023.